If projects include RHF loan financing, the following processes and requirements apply. If projects also include LIHTC, additional procedures, described later in this section, apply as well.
7.1.1 Loan Reservations
Following approval of recommended reservations, sponsors will receive funding reservation letters. These reservation letters include preliminary terms and conditions for the commitment of loan funds. They also specify requirements that must be met for projects to be approved for a commitment letter to be issued, including processing documentation and timeframes. The reservation is not a commitment to make a loan and DHCD is not obligated to make a loan until all conditions in the commitment letter are satisfied. DHCD reserves the right in making a reservation to substitute sources of funds, if, in DHCD’s sole determination, this substitution provides for a more efficient use of DHCD’s resources.
A reservation may be canceled and an application withdrawn from processing if any of the following occur:
The loan processing and submission kit requirements as described in this section are not met. This includes a failure to meet the timeframes established in each kit.
The project changes substantially from the initial submission. A substantial change includes: (1) a change resulting in a score reduction of the lesser of 3% or an amount sufficient to lower the score below the cut-off score for the round in which the project was approved; (2) a significant change in the project’s design, financing, or amenities; (3) a material reduction in the project’s income targeting or unit count; (4) a change of the project’s sponsor or other member of the development team without the prior written approval of the Director of CDA; or (5) a change of the project’s site.
The project is changed so that it no longer meets all Threshold Criteria.
The project’s Developer, sponsor, owner, or its general partner(s) or managing member(s) files for bankruptcy or is the subject of an involuntary bankruptcy.
The project is, for any reason, no longer feasible.
The project’s Developer, sponsor, or owner submits false, misleading, or incomplete information to DHCD.
7.1.2 Post Reservation Scheduling
DHCD must approve any significant deviations from the project schedule set forth in the application. In these cases, sponsors must submit updated schedules, including an explanation for the change, to DHCD for review. Sponsors must promptly notify DHCD if for any reason projects that receive reservations become infeasible.
DHCD monitors the progress of projects to ensure timely completion. LIHTC and RHF Reservations and LIHTC Carryover Allocations will be canceled if a project falls too far behind its schedule, in DHCD’s determination, or if it is determined that DHCD resources are in jeopardy of being lost to the State due to nonperformance by the sponsor. Failure to meet DHCD processing schedules may also affect future scoring (see also Section 5.1 – Capacity of Development Team).
For projects requesting RHF, the applicant’s processing schedule must be consistent with DHCD’s loan submission kit process. For projects requesting allocations of current year LIHTC, sponsors must demonstrate that projects will meet the requirements for allocation of current year LIHTC. Please refer to the QAP and Section 7.2 below for more information on processing LIHTC reservations and allocations.
7.1.3 Kick-off Meeting
Following its issuance of reservation letters, DHCD schedules “kick-off” meetings with sponsors. The multifamily lending team assigned to each project, which includes underwriting, construction, LIHTC, and finance staff, will be present at the meetings. Sponsors should require representatives of their contractor, architect, and management agent to attend. If any project financing requires mortgage insurance, a representative of the insurer also should be present at this meeting. Other DHCD staff members that may need to attend the kick-off meeting include the Director or Deputy Director of Multifamily Housing, DHCD’s Equal Opportunity Officer, DHCD’s attorney, and compliance and asset management staff.
The purpose of these meetings is to review reservation letters to gain a common understanding of their requirements, terms, and provisions for further processing of applications. At the kick- off meetings, assigned team members review the requirements and timeframes of the loan processing schedule and submission kit processing in detail. At this time, the assigned team members may elect to schedule subsequent meetings with sponsors to conduct detailed site visits.
7.1.4 Underwriting and Construction Review
After reservation letters are issued, loan applications are underwritten and detailed construction plans and documents reviewed before issuance of commitment letters. The review process is generally divided into two phases, viability and commitment reviews. In its discretion, DHCD may permit the submission of a combined viability and commitment package (fast track). Specific milestone dates for completing these reviews and issuing commitment letters are discussed at kick-off meetings and set in conformance with DHCD’s submission kit loan process. Detailed guidance is provided to sponsors throughout this process to assist the Development Team in the preparation of construction plans and underwriting documentation. The
architectural requirements for each stage of this review are those defined in the American Institute of Architect’s (AIA) publication The Architect’s Handbook of Professional Practice. Additionally, other underwriting requirements will be detailed and made clear to all parties early in the process. Projects in the advanced stages of pre-development will be able to proceed at much quicker paces. In any event, DHCD and sponsors should make every attempt to complete all review requirements within the timeframes outlined in reservation letters and during kick-off meetings.
7.1.5 Viability Review
During this phase of the review process, sponsors submit updated application forms along with more detailed construction and underwriting documentation, all as specified in the viability submission kit supplied at kick-off meetings. DHCD staff reviews the material and issues viability reports to sponsors. Viability reports include DHCD’s underwriting pro-forma and a term sheet showing any changes in anticipated loan terms and conditions based on findings during the viability review.
7.1.6 Commitment Review
At this stage of review, sponsors submit final application forms and complete construction and underwriting documentation. After DHCD staff has reviewed the materials, a commitment report, including a final underwriting pro-forma and updated term sheet, are prepared. The commitment report is sent to sponsors and the term sheet to DHCD’s attorney. Based on the findings in the commitment report and the viability report, a draft commitment letter is prepared and sent to the sponsor. DHCD’s goal is to complete any adjustments to the draft commitment letter within fifteen (15) calendar days of issuing the commitment report and to issue the commitment letter not later than seventy (70) calendar days after the sponsor submits the commitment review package. Once all adjustments are made, DHCD’s attorney finalizes the commitment letter and begins preparing loan documents.
7.1.7 Initial Closing
Along with the commitment letter, sponsors receive a loan closing checklist. The checklist specifies closing documents that sponsors must provide before the financing will be closed. DHCD’s standard loan conditions are detailed in the commitment letter. Sponsors should also review and understand DHCD’s draw and requisition requirements, particularly those affecting the initial draw. Staff is available to meet and review the draw procedures. Copies of the draw procedures also are available on DHCD’s website at:
DHCD will move expeditiously to initial closing; however, initial draw requests must be submitted to DHCD at least fifteen (15) business days prior to initial closing. Accepting DHCD’s form closing documents without modification expedites the closing process.
Following the closing, DHCD staff schedule a servicing meeting with sponsors to review the terms and conditions of the loan. This meeting is intended to ensure all parties fully understand how the loan will be repaid and that other conditions of the loan documents are met.
7.1.8 Construction or Rehabilitation Period
Construction or rehabilitation of projects normally commences once initial closing is complete. Prior to the start of construction or rehabilitation, sponsors and their general contractor must participate in a pre-construction conference with the Multifamily Housing construction staff and Finance Manager responsible for the project. The purpose of the meeting is to fully review all construction period procedures such as inspections by DHCD staff, draw requisition and disbursement procedures, and change order procedures and requirements. All other project lenders should be present at this meeting to ensure a smooth inspection and draw process. At a sponsor’s request, DHCD may permit work on projects to begin prior to closing of DHCD’s financing. An “Early Start” of the construction or rehabilitation may be authorized only after issuance of the commitment letter. Approval for an Early Start is evidenced by a written approval issued by DHCD. Work may begin when the conditions of the Early Start letter are met and the pre-construction conference has been held. DHCD will not fund any costs incurred for work performed under an Early Start unless the loan is eventually closed.
7.1.9 Developer Fee Disbursement
For transactions involving RHF, DHCD may allow up to 25% of the projected non-deferred portion of the budgeted developer’s fee to be disbursed at initial closing or through substantial completion, as evidenced by the issuance of an acceptable certification of substantial completion by the project architect. At substantial completion, DHCD may allow an additional 25% of the projected non-deferred portion of the budgeted developer’s fee to be disbursed. The remaining non-deferred developer’s fee is disbursed only after the project is 100% complete, a cost certification is accepted by DHCD, and DHCD’s final closing requirements have been completed.
Developer’s fees may be paid only from equity, cash flow, or other non-DHCD sources of funds, if DHCD loans are not in default, and if Developers continually perform satisfactorily.
Deferred developer fees are disbursed only after all must-pay debt and cash flow payments are made from net operating income.
7.1.10Final Closing
After the completion of construction or rehabilitation, sponsors must complete a certification of costs incurred prepared by an independent certified public accountant. The cost certifications will be reviewed within ninety (90) calendar days of receipt provided all construction close-out documents and change order requests have been submitted before or at the same time that the cost certification is received. A final determination of mortgage proceeds letter will be prepared and sent to the sponsor for signature.